How to Stop Drug Price Gouging

By Tim Wu

April 20, 2017

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CreditCreditAlex Nabaum

One of Donald Trump’s few universally welcomed campaign promises was to do something about the prices of pharmaceutical drugs. Most Americans recognize that prices are too high, and are bothered by the rise of pharmaceutical price gouging: the giant price increase for decades-old drugs and devices by the likes of Martin Shkreli with Daraprim or Mylan with the EpiPen. But what few people realize is that the president already has the power to do something about drug prices if he really wants to. If Mr. Trump wishes to show he’s serious about his populist promise, the place to start is by declaring war on the price gougers.

The key power is found in the “import relief” law — an important yet unused provision of the Medicare Modernization Act of 2003 that empowers the Food and Drug Administration to allow drug imports whenever they are deemed safe and capable of saving Americans money. The savings in the price-gouging cases would be significant. Daraprim, the antiparasitic drug whose price was raised by Mr. Shkreli to nearly $750 per pill, sells for a little more than $2 overseas. The cancer drug Cosmegen is priced at $1,400 or more per injection here, as opposed to about $20 to $30 overseas.

The remedy is simple: The government can create a means for pharmacies to get supplies from trusted nations overseas at much lower prices. Doing this would not only save Americans a lot of money but also deflate the incentive to engage in abusive pricing in the first place.

Why hasn’t the law been used? Over the years, the industry has tried to describe the statute as a nuclear option, repeatedly warning of the catastrophic danger of relying on the drugs used by those reckless Canadians. More legalistically, the industry has insisted that the Department of Health and Human Services (which oversees the F.D.A.) cannot reliably certify that imports would “pose no additional risks to public health and safety” as the statute requires. But Health and Human Services is an executive agency, bound to obey the president, and the needed cost and safety determinations are well within its capacity.

The safety fears, if not purely imaginary, are wildly exaggerated. Twenty-five percent or more of drugs labeled American-made are actually manufactured in other countries, in plants inspected by the F.D.A. (So are 80 percent of the active ingredients used in the production of drugs in American factories.) The “imports” that the industry refers to are the same pills as those “American-made” drugs, produced by the same F.D.A.-inspected plants overseas. The only difference is that some of those drugs are shipped to countries like Canada, while others are sent directly to the United States, where they are sold for 10 or sometimes hundreds of times the Canadian price.

The F.D.A., in other words, is already regulating imported drugs. It might as well use those powers to fight price gouging. Indeed, over the past six years the F.D.A. has been allowing imports of drugs to deal with shortages in accordance with a 2011 executive order. For example, when facing shortages of the cancer drug Doxil, the F.D.A. authorized imports of a substitute, Lipodox, manufactured at an F.D.A.-inspected plant in India. Lives have been saved, not lost, and the practice confirms that this country already knows how to ensure that importing drugs from trusted nations can be safe. The industry’s “safety” warnings are more politics than reality.

President Trump can do serious damage to the pharmaceutical price-gougers if he wants to, and will be cheered on by everyone who is not on the payroll of the pharmaceutical industry, and even some of them as well. A suitably aggressive beginning would be to select the 10 most outrageous instances of excessive pricing (I would define that as an unjustified price increase of more than 1,000 percent for a drug that is no longer protected by a patent). Go after the worst offenders first: the owners of drugs like Daraprim, Cosmegen, Thiola, Mustargen and Indocin, all of which have had price increases of 1,000 percent to 5,000 percent. Let companies like Ovation, Turing, Valeant, Mylan and other abusers of the system become a warning to others who might want to make price-gouging their business model.

Obviously, waging war on pharmaceutical pricing abuses would not represent a full solution to the broader problems in drug pricing. Congressional proposals, including a new Senate bill introduced by Bernie Sanders, independent of Vermont, Amy Klobuchar and Al Franken, Democrats of Minnesota, and others, would go further. But it would be the beginning of imposing discipline on an industry accustomed to its absence and a signal that this administration is serious about using the powers it has to make drugs affordable.

President Trump ran as an economic populist who would take on industry on behalf of the people. Here, the people clearly want something done. All it really takes is a chief executive who has the courage that he claims.

Correction:April 26, 2017

An Op-Ed article on Thursday about controlling the prices of prescription drugs misspelled, in one instance, the name of the maker of the EpiPen. It is Mylan, not Mylar.

Tim Wu, the author of “The Attention Merchants: The Epic Struggle to Get Inside Our Heads,” is a professor at Columbia Law School and a contributing opinion writer.